Lower inflation prompts BSP to cut interest rates

MANILA, Philippines- Citing easing consumer prices, the Bangko Sentral ng Pilipinas for the second time since December further relaxed monetary policy and reduced the rate at which it borrows from or lends to banks. The 50-basis point cut, which was double the widely-anticipated 25-basis point cut by analysts, brought the BSP’s overnight borrowing rate to only 5 percent and its lending rate to only 7 percent effective immediately. The Monetary Board based its decision on the latest inflation outlook which shows prices of goods and services falling within the target range for 2009 and 2010. “The Board noted that the balance of risks to inflation tilted to the downside due to the softening of prices of commodities, the slowdown in core inflation, significantly lower inflation expectations and moderating demand," BSP governor Amando M. Tetangco Jr. said at the post-meeting briefing on Thursday. His deputy, Diwa C. Guinigundo, told reporters the benign inflation rate of 8 percent in December was a factor in swaying the seven-man board to further slash rates. Although the Philippines has yet to feel any credit tightness, the move was aimed at avoiding freezing of the credit market, Guinigundo added. A number of local bankers, however, have told reporters the industry is awash with cash, raising questions as to why the BSP decided on a deeper-than-expected rate cut at a time when liquidity is aplenty. But Tetangco defended the move, saying there remains “room for further easing in the monetary policy stance, which should also provide support to financial markets and the real economy." “Monetary easing could help promote the smooth functioning of the financial system through easier access to liquidity and credit, and in the process shore up market confidence," he said. Tetangco also urged the banks to pass on the benefits of the rate cuts in the form of lower loan rates for their customers. He also said the rate cuts “complement the fiscal stimulus program" which intends to boost infrastructure spending and targeted social programs. GMANews.TV